New Life for Botox Investor Case in 9th Circuit
(CN) - Shareholders can sue Allergan directors for allegedly building a business plan on the illegal off-label marketing of Botox, the 9th Circuit ruled Tuesday.
Allergan Inc. settled several whistle-blower lawsuits and pleaded guilty in a 2010 criminal case that accused it of illegally marketing and labeling the cosmetic drug. Though it paid about $600 million to settle the allegations, it soon faced a civil action claiming that Allergan directors knew all about the alleged criminal conduct.
Shareholders claimed that the board of directors had known about and approved the company's strategy to increase the off-label use of Botox to treat headaches, spasticity and other issues between 1997 and 2010.
Between 1989 and 2010, the Food and Drug Administration approved Botox only for treating crossed eyes, involuntary eyelid muscle contractions, involuntary neck muscle contractions and excessive sweating, according to the ruling.
U.S. District Judge David Carter in Santa Ana dismissed the shareholder action, finding that investors failed to show they were excused from first requesting that Allergan bring such derivative claims in its own name.
An appellate panel revived the case Tuesday with a unanimous reversal.
"Plaintiffs offer a battery of particularized factual allegations that strongly support an inference at this stage of the litigation that the board knew of and did nothing about illegal activity," Judge Stephen Reinhardt wrote for the three-judge appellate panel.
The panel pointed out that, beginning in 1997, "even as it anticipated that Botox approval for pain, migraine, and spasticity would not occur for at least four or five years, the board adopted a four-year plan that described maximizing sales for these off-label uses as a 'top corporate priority,' opportunity for 'immediate growth,' and a means to 'maximize ... Botox® now.'"
"It can be reasonably inferred from this strategic plan that the Board was intensely interested in off-label sales of Botox, saw off-label sales of Botox as a critical driver of growth for Allergan over the upcoming years, and planned on very closely monitoring off-label Botox sales," Reinhardt added. "It can also be inferred that the Board was aware that pain, headache, spasticity, and migraine were all off-label uses, but nonetheless wanted to achieve major growth well before FDA approval. Over the next 13 years, that is precisely what happened: due mainly to a continuing series of illegal Allergan programs, off-label sales of Botox skyrocketed."
Joseph Daley, an attorney with Robbins Geller Rudman & Dowd in San Diego, represented the shareholders and noted his happiness that the case will proceed to trial.
Robbins Geller partner Aelish Baig praised "significant win for investors seeking to hold corporate boards accountable for misconduct that hurts shareholders."
"In its opinion, the Court of Appeals laid out the information that Allergan's board received informing the directors that Allergan engaged in the illegal, off-label marketing of one of its flagship products," Baig said in a statement. "The illegal conduct ultimately led to Allergan paying $600 million in civil and criminal penalties."
Mark Perry, of Gibson, Dunn, & Crutcher in Washington, D.C., represented Allergan. The company tried to downplay the decision's impact.
"Today's decision simply gives the plaintiffs permission to commence their derivative lawsuit, which relates to a matter dating back nearly a decade," Allergan said in a statement. "The allegations themselves have not yet been tested or proved, and the defendants are confident they will be vindicated."